Russia will raise tariffs on Chinese auto exports or be hit

Russian Prime Minister Vladimir Putin said recently that due to economic recovery and rising demand, the Russian government plans to increase import vehicle taxes to encourage international automakers to increase domestic vehicle production. In an interview with the National Radio, Putin stated that in the coming years, Russia will again raise the import tariffs on cars and trucks on the basis of the original 30%.

At present, China has Chery, Great Wall, BYD, Geely, Lifan, Dongfeng and many other vehicle manufacturers export cars to Russia. In 2008, the top five destination countries for China’s auto exports were Russia, Ukraine, Vietnam, Algeria, and Iran. The Russian market has experienced the most dramatic changes from high growth to sharp declines. Russia used to be the largest exporter of Chinese cars. In the peak period of 2007, Chinese cars exported nearly 57,000 vehicles to Russia.

However, since the end of 2008, China’s auto export situation has begun to deteriorate, and its share in the Russian market has also rapidly declined. In 2009, it slipped to the “bottom height”. In that year, the Chinese company’s vehicle exports to Russia were actually only hundreds of vehicles.

Putin said to Lada, Russia’s largest foreign automaker: “We don’t want to destroy your business here. We hope you can increase production and drive technology growth in Russia.”

It is understood that in order to protect the country’s depressed automobile production, as an emergency measure under the economic crisis, Russia has increased the original 25% auto import tariff to 30% since December 2008. This measure does not involve the assembly of cars produced in the country. So far, Russia has taken a series of measures to stimulate sales of domestic cars and trucks. The biggest project launched is to allow the tenants of Russian-made cars to trade for ten years. This year, the Russian government also earmarked $7 billion for the cash incentives for buying cars.

Putin pointed out that Russia will gradually realize technological transformation, expand production capacity and strengthen technical training for experts. Russia will provide a good environment for foreign automakers to conduct business in Russia.

The Russian market was once the largest exporter of Chinese cars. It fell to the 20th place now. Russia’s constant increase of tariffs has caused a fatal blow to Chinese auto exports. Statistics show that the average tariff on imported goods in the Russian market is 10.5%, but the tariffs that imported cars have to pay are 30%. In recent years, the continuous appreciation of the renminbi and the continued depreciation of the ruble have also drastically reduced the price competitiveness of Chinese cars.

If Russia raises the tariffs on imported cars again in the future, it will undoubtedly be a more deadly blow to Chinese cars with a "competitiveness ratio" as the main competitive advantage.

Since the disintegration of the Soviet Union, foreign car brands have had a huge impact on the Russian automotive industry. In the end, Avtovaz became the only remaining fruit of the Russian automotive industry. Some foreign car companies such as German Volkswagen, Renault of France, and other quasi-Russian automobile industry were allowed to open factories in Russia. At the same time, many auto companies also export vehicles to Russia. These exotic brands are very popular in Russia. The data shows that in July Russia's top-selling four cars were Logan and Ford Focus, followed by Lada. In this regard, Putin believes that the rise of foreign brands is not conducive to the revival of the local automobile industry, so they want to increase import tariffs by adding tariffs.

According to financial news, analysts pointed out that Putin’s move will likely affect Russia’s accession to the WTO. It is reported that Russia has applied for accession to the WTO since 1993, and according to the WTO Geneva headquarters treaty, Russia must reduce the existing 30% tariff to 15% within 7 years after becoming a WTO member. At the beginning of the second quarter, relevant Russian officials stated that it is expected that Russia will officially join the WTO in early 2010.

Trade experts are currently clarifying Putin’s claim. Aleksei Portansky of the Moscow Higher School of Economics said that he was surprised. He claimed that according to the agreement with the WTO, Russia has the right to increase the tariffs on old models, but it cannot increase the tariff on new cars. A Western official close to the WTO also stated that Putin’s move violated the relevant provisions of the WTO.

For all inquiries, the Russian government has not directly responded.